A majority of large financial institutions in the United States, which includes banks, credit unions, savings and loans, and other type financial institutions, utilize software to originate Automated Clearinghouse (ACH) transactions onto the Federal Reserve System's ACH network. The Federal Reserve System is the central bank of the United States of America, formed by an act of Congress. It consists of twelve Reserve Banks located in major cities throughout the United States. The ACH network electronically links the Federal Reserve Banks with financial institutions throughout the United States to support electronic funds transfer between the financial institutions. The most popular software package for originating ACH transactions is known as PEP+ and is a product of CheckFree, the assignee of the present application.
Corporate customers of these financial institutions submit received paper items and/or electronic transactions to their respective financial institutions for deposit into their accounts. A corporate customer account may be any type of financial account that can receive deposits, including checking and savings accounts. The deposits, typically payments, may be drawn against any type of demand deposit account, including, but not limited to, a checking account. Paper items are typically checks or drafts. These paper items are sometimes converted into electronic transactions. This process is known as Accounts Receivable Conversion (ARC), and the associated transactions are referred to as ARC transactions. A corporate customer, referred to herein as a remote client, can include, but is not limited to, a lockbox processor, another type of payment service provider, and a merchant or biller. A lockbox processor is an entity that provides a payment processing service to businesses, collecting and processing the payments a business receives and crediting the business's bank account. A merchant or a biller is an entity that issues bills for services rendered or goods purchased, a merchant may also receive payment at the time of delivery of sold goods or services.
CheckFree's PEP+ software performs ARC processing to originate ARC transactions onto the ACH network. The software must first determine if the item can be converted to an electronic transaction. It will be recognized that electronic transactions can be cleared faster and less expensively than paper items. Thus, it is desirable to convert as many paper items into electronic transactions as possible.
In converting a paper item to an electronic transaction, the automated processing of the software parses the MICR line information on the paper item to identify the routing transit number (RTN) and the account number portions. The determination as to if the item can be converted to an electronic transaction is made based upon one or both of the identified RTN and account number. This process is known as validation. Validation sometimes includes altering one or both of the RTN and the account number. The process involves verification of the RTN and the MICR line scheme. The MICR line scheme includes pattern and placement of MICR line information other than RTN information and amount information. The process may identify whether the information is valid and can be processed at all, whether the account is accessible through the ACH, or whether it can be converted to an account that can be accessed through the ACH. This determination is made because some accounts, such as those upon which money orders and balance transfer checks are drawn, while maintained by a financial institution reachable via the ACH network, are not themselves reachable via the ACH network. Alteration of an account number is then most often done to conform to a preferred scheme for an electronic transaction.
Likewise, for an incoming electronic transaction, the software executes similar automated processing to validate the identification of the paying financial institution and funding account number, both included in the received electronic transaction, and possibly altering one or more of these.
It has been found that it is beneficial for a remote client to perform at least a subset of the processing to convert a paper item to an electronic transaction. When a remote client performs some of the functions, a financial institution can more quickly and economically originate a transaction, as fewer processes must be performed by the financial institution and rejections back to the remote client are greatly reduced, if not eliminated. This reduces costs to both the remote client and the financial institution.
Some remote clients execute an algorithmic process to parse the MICR line information. This parsed information is then supplied to the financial institution for further processing and/or originating an ACH transaction. For example, LML Payment Systems sells software for use by a remote client in parsing MICR line information. In parsing MICR line information, this software must recognize MICR line patterns to properly identify the account numbers. Not only may there may be considerable variance in such patterns between different financial institutions, but the financial institutions may change their patterns as a result of bank mergers and acquisitions, changes to internal systems, etc. Unless this software is frequently updated, it cannot continue to parse reliably. This updating is expensive in subscription costs, man-hours, and software down time.
Other remote clients execute a process to validate the MICR line information (or portions thereof) of a paper item based on a database of recognized values (e.g., routing transit numbers) and schemes to perform at least some subset of validation and alteration processing as described above. Such a process may require a costly subscription service to a database and/or frequent updates from the database provider (which may be a financial institution which performs ACH origination for the remote client). Also, for both parsing software and validation databases, these tools are general tools in that the same information is distributed to all remote clients. There is no consideration of a particular remote client's customer base in providing information. Thus, a large amount of information, much of it which will remain unused, is distributed to all remote clients.
In view of the above, there is a need for a remote client solution for conversion of a paper item to an electronic transaction that is inexpensive, targeted, and does not require frequent software or data updates at a remote client.
A financial institution or other entity performing ACH origination (hereinafter simply referred to as “financial institution”) often has several software solutions available for validating and/or altering financial account information, whether that be in the context of converting a deposited paper item to an electronic transaction, or in the context of verifying a received electronic transaction to be propagated to the ACH network. Different software solutions, offered by, for example, Thomson, CheckFree, and other vendors, have different levels of success in validating and/or altering MICR line information, as well as different costs to a financial institution. To date, there has been no method for a financial institution to select the best software solution to validate and/or alter a particular account number.
Accordingly, there is a need for an intelligent algorithm for deciding between available options for validating and/or altering an account number.